What’s Going On Here?Global spirits giant Diageo has warned investors that the coronavirus is going to give it one heck of a hangover. Shhh – not so loud, please. What Does This Mean?Diageo – the world’s biggest spirits maker – is expecting to lose $260 million in profit this year because of the virus. Sales in its once-fast-growing Chinese market have collapsed as bars and restaurants have shut their doors, while its airport sales are feeling the effects of fewer travelers. Making matters worse, Asia – which accounts for a fifth of Diageo’s sales – is canceling conferences left, right, and center.
But it’s not just booze that’s giving investors a headache: Danone – the French producer of Evian water – lowered its sales and profit targets as demand for its products falls in China. That news has come at a bad time: the company’s new plan to spend $2.2 billion on reducing its reliance on plastic packaging is expected to knock profits, too. Why Should I Care?Zooming out: P-S-A, P-S-A!
Still, at least one French company had something good to say on Wednesday: Peugeot-owner PSA Group shrugged off pessimism in the car industry with better-than-expected profit and an increased dividend. While the carmaker expects sales in Europe – its largest market – to drop this year, investors are just relieved it doesn’t rely on China: car sales there have dropped 92% so far in February.
For markets: Drinking to forget.
Danone and Diageo both belong to “defensive” industries: those that, in theory, aren’t hit as hard during economic downturns. People still tend to buy food and liquor in a recession, after all. Carmakers, on the other hand, operate in a “cyclical” industry where profits tend to flow with the economic tide. Bad results or not, shares of companies like Danone and Diageo could ultimately fare better than those of PSA Group if the virus pushes the global economy into recession. | 